Regeneration of craniofacial and skeletal bone defects has widely been achieved with bone grafting procedures. The literature suggests that there are more than one million cases of skeletal defects per year that require bone-graft procedures. Autologous bone has been considered the gold standard for such procedures. However, there are several disadvantages associated with this modality of treatment. The ability of stem cells to give rise to multiple specialized cell types along with their extensive distributin in many adult tissues make them an attractive target for application in bone tissue engineering. Dental MSCs such as stem cells from human exfoliated deciduous teeth (SHED) are attractive postnatal stem cells because they possess self-renewal and multilineage differentiation capacity as well as superior osteogenic properties compared to bone marrow mesenchymal stem cells (BMMSCs). The central hypothesis of this proposal is that an RGD-coupled alginate hydrogel scaffold can protect the encapsulated dental MSCs (SHED) from immune cells and cytokines in the early stages of transplantation, providing an appropriate physiochemical microenvironment for enhanced MSC viability and osteo-differentiation. It is hypothesized that these interactions are crucial in the osteogenic lineage commitment of dental MSCs. This proposal addresses a very important unresolved question: what is the role of the microenvironment (biomaterial) in dental MSC-immune cell interplay, fate determination of MSCs and osteogenic differentiation of MSCs. The validity of the central hypothesis will be tested by 1) determining how RGD-coupled alginate hydrogel as an encapsulating scaffold can interfere with the interplay between immune cells and dental MSCs in bone regeneration; 2) investigating the detailed mechanism of immune cell-induced MSC apoptosis; 3) developing a 3D alginate-based delivery system with anti-inflammatory function in the presence of indomethacin and 4) evaluating the effects of this delivery system on the bone regeneration properties of encapsulated MSCs. Upon successful completion of the Specific Aims, this project will improve our understanding of dental MSC-host immune interactions and introduce a promising MSC-based treatment approach for maxillofacial and skeletal defects. The result will be a novel injectable and biodegradable scaffold, presenting an innovative treatment modality for bone regeneration with therapeutic properties to manage local inflammatory reactions.